Microsoft has shut down at least 15 branches and joint ventures in China over the past five years and is now carrying out a strategic retreat, Reuters reported. The news agency pointed to several reasons: US-China tensions, Beijing's drive to replace foreign software with domestic products, and US export controls.
Back in 2023, Microsoft weighed a full exit from China in internal discussions. Some executives said the business was “taking on excessive geopolitical risk for limited economic returns.” That idea never went ahead. In 2024, Microsoft said its China business made up only about 1.5% of global revenue.
Reuters said Microsoft chose to remain in China after finding a business that still made money: selling Azure cloud and AI services to Chinese companies expanding abroad, including ByteDance and Shein, and helping them operate in compliance with rules in overseas markets. And the company still sees value in staying put in China for one reason in particular: access to local engineering talent.
But analysts are skeptical about how long that AI model can hold up. The offering relies on third-party models such as OpenAI, while Chinese companies are moving more and more toward domestic options like Kimi, which offer similar performance at a lower price.
Microsoft’s R&D presence in China is getting smaller too. Its earlier China research arm, Microsoft Research Asia, has opened new labs in Vancouver, Singapore, and Tokyo. In 2024, Microsoft gave 1,000 top engineers the option to relocate to the US and three other countries; only about a third said yes. Most senior engineers instead moved to domestic universities and tech companies.
A Microsoft spokesperson said the company still remains committed to the Chinese market, but declined to discuss specific decisions. ByteDance and Shein did not respond to requests for comment.